In the Long Run

We have just lived through an age in which economists were our most influential moral philosophers. The results haven’t been great. “The main moral compass we now have is a thin and degraded notion of economic welfare, measured in terms of quantity of goods,” Robert Skidelsky writes. Lately we’ve been failing even by that impoverished measure. The time certainly seems ripe for an overthrow of the economists.

Or perhaps it’s simply time for a return to an approach to economics that had largely faded from sight in the past quarter-century, that of John Maynard Keynes. Bringing about such a comeback is Skidelsky’s stated intent in “Keynes: The Return of the Master.” And while Peter Clarke is less explicit in “Keynes: The Rise, Fall, and Return of the 20th Century’s Most Influential Economist,” the basic message is the same: Keynes is back, and deservedly so.

This Keynes revival has already been widely discussed, of course. It is usually linked to arguments that the economy can be stimulated through government deficit spending. In reality, such arguments had never disappeared from practical economic discourse — they had just been banished from some academic quarters. And if that were all the return of Keynes was about, it wouldn’t be very interesting.

Neither should the Keynes comeback be seen as an attempt to establish his “General Theory of Employment, Interest and Money,” first published in 1936, as an economic bible to be consulted at every turn by students and policy makers. Keynes would have found such an effort silly. He was dismissive of those who leaned too heavily on rules derived from a sacred text, be it the Koran or “Das Kapital.” Clarke quotes him saying in 1944, after a meeting with several of his American disciples, “I was the only non-Keynesian there.”

What’s vital about Keynes today is not so much a well-defined economic doctrine as the attitude and the tools with which he attacked economic problems. This is where the historians Clarke and Skidelsky come in. Clarke has written two volumes on the “Keynesian revolution”; Skidelsky is the author of the definitive biography of Keynes, a three-volume epic that took him decades to finish. Their new books are useful and important introductions to what a modern Keynesianism might look like. A warning, though: both authors get off to extremely slow starts.

Clarke’s book is an attempt to give readers the full Keynes, in brief. In its early chapters it founders on the reality that Keynes’s life was just too interesting, and too closely intertwined with that of other major figures of his age, to submit to a mere sketch. Unless you already know a good deal about Keynes and early-20th-century Britain, it’s just plain hard to get through. (There’s a reason that even the abridged paperback version of Skidelsky’s Keynes biography runs to 1,056 pages.) Skidelsky’s new book doesn’t attempt much in the way of biography, but it struggles for several chapters through a clunky, sloppy account of the current financial crisis and of the development of economics since Keynes.

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John Maynard Keynes

It is only when they get to Keynes’s ideas that the books take off. Clarke lays out the development of Keynes’s economics from the mid-1920s to his “General Theory,” and it’s a gripping journey. In the beginning, Keynes is a conventional economist trying to solve some problems for which conventional economics offers no obvious solutions. By the end he has overthrown a basic tenet of what he called “classical economics” — that saving is the key to economic growth and that saving will always result in investment. Keynes came to believe that the appetite for investment would usually trail the appetite for saving, leaving economic growth and employment below potential unless government intervened.

One comes away from this account impressed by the continual interplay between theory and economic reality in Keynes’s work. He thought theory — including conventional economic theory — was important and useful. But he was willing to go straight back to the drawing board when it didn’t provide satisfactory answers to his questions. The contrast with modern academic economists and their attachment to elegant mathematical models is instructive.

Skidelsky takes a more systematic approach, dividing Keynes’s thinking into its political, economic and moral elements. In this telling, Keynes’s political views were dominated by a pragmatism similar to what Clarke describes, where the best is the enemy of the good. Keynes was no socialist, but also no free-market ideologue. He was interested in what worked.

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In economics, the crucial Keynesian concept is uncertainty. Where it prevails, the simple rules of classical economics don’t apply. That’s because the classical economics that both predated Keynes and superseded him relies on rational actors making rational assessments. In order to make such assessments you have to have reliable knowledge, usually derived from past experience. Buyers of oranges or newspapers or legal services can be said to possess such knowledge. Buyers of speculative securities cannot. They’re always looking into an uncertain future, “anticipating what average opinion expects the average opinion to be,” as Keynes put it.

This, in Skidelsky’s convincing telling, is why financial markets are so prone to disorder and disaster. It’s not that investors are terribly irra­tional. It’s that no one can really know what rational means when it comes to pricing investment securities. That’s why relying on financial markets to make big economic decisions can be so problematic, and why economic theories built on the assumption that financial markets behave ration­ally fail to explain our world. Skidelsky is of the opinion that graduate education in economics should be sharply divided into micro­economics, in which students single-mindedly focus their mathematical and logical skills on problems that aren’t dominated by uncertainty, and macroeconomics, which requires a more varied humanistic training.

If economics does not contain all the answers, where are we to find them? This was a question to which Keynes gave a lot of thought. As a young man he was highly influenced by the teachings of the Cambridge philosopher G. E. Moore, who preached that we should strive for a “good” that was neither moral nor hedonistic (nor even definable). Later on, Keynes was to acknowledge that this “good” might be a less elegant concept than he had once thought. He and his Bloomsbury friends believed for a time that they had discovered a modern, secular set of ideals, but may simply have been embroidering on the Christian tradition of their parents. As he wrote to his friend Virginia Woolf, “We destroyed Xty & yet had its benefits.”

In a famous 1930 essay, “The Economic Possibilities for Our Grandchildren,” the grandchildless (and childless) Keynes sketched a distant, “Star Trek”-like future where once “the economic problem was solved,” people could focus on the things that mattered most. But what mattered most? Keynes had no real answer for that and could see that coming up with an answer would be a fraught and dangerous task for most societies. But just by trying to address it, he made his economics a very different subject than the single-minded pursuit of resource-maximization that calls itself economics today.

KEYNES

The Rise, Fall, and Return of the 20th Century’s Most Influential Economist

By Peter Clarke

211 pp. Bloomsbury Press. $20

KEYNES

The Return of the Master

By Robert Skidelsky

221 pp. PublicAffairs. $25.95

Justin Fox, the author of “The Myth of the Rational Market,” writes the Curious Capitalist column and blog for Time magazine and Time.com.

A version of this review appears in print on November 1, 2009, on Page BR13 of the Sunday Book Review with the headline: In the Long Run. Today's Paper|Subscribe